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EIIS – How Does Tax Relief Work? 2021

By 13/09/2021No Comments

EIIS Tax Relief 2021 :: How does Tax Relief Work on the current Employment and Investment Incentive Scheme?

 

The 2021 Employment and Investment Incentive Scheme (“EII Scheme”) is a tax relief incentive scheme which provides tax relief against total income for income tax purposes to Qualifying Investors for investments in certain Qualifying Companies. The EII Scheme offers one of the few remaining income tax reliefs in Ireland and is one of the few sources of total income tax relief (which includes, for example, rental income, ARF distribution income).

Under the scheme, Irish taxpayers who put money into an approved EII investment can reduce a substantial portion of their taxable income for the year in which the investment was made. The maximum investment allowed is €250,000 per year. Tax relief on EII investments are not subject to the High Earners Restrictions. A married couple can each obtain individual relief on an investment of €250,000, provided each spouse has sufficient taxable income.

Please note that the examples seen below are for illustrative purposes only. Before making any investment, you should check with your own tax advisor to determine how an investment in EIIS will impact on your own personal circumstances. 

 EIIS Tax Relief 2021 Example 1 – Rental Income as Only Source of Income 

Grace has a considerable unencumbered property portfolio. She has rental income of €180,000 per annum. The full amount is liable to income tax, USC and PRSI. As these are not ‘Relevant Earnings’ she cannot reduce her tax liability by making a pension contribution.

Grace requires gross income of €100K per annum to fund her lifestyle and has €80K available to invest.

She invests €80,000 in EIIS investments in 2021 across a number of different companies. She will receive the following tax relief:

Investment                                     €80,000

Tax relief given Year 1*                     €32,000

Net Investment                                   €48,000

Return after Year 4                            €80,000 + investor return.

The investor return is subject to Capital Gains Tax. For the purposes of computing an individual’s liability to CGT, the purchase price of the shares will be considered to be the cost before deduction of the tax relief.

*Subject to investee company meeting certain criteria.

 

 EIIS Tax Relief Example 2 – ARF Distribution 

Patrick is 63 and has an annual distribution from his ARF of €120,000. He also receives significant investment income from rental properties, dividends and deposits that he holds personally.

His investment income funds his lifestyle and he is concerned that he has a significant tax liability on his ARF distribution.

He invests €120,000 that is distributed from his ARF in EIIS investments in 2020 across a number of different companies. The tax he pays on his ARF distribution is all at the higher rate. He will receive the following tax relief:

Investment                                    €120,000

Tax relief given Year 1*                    €48,000

Net Investment Cost                        €72,000

Return after Year 4                           €120,000 + investor return.

The investor return is subject to Capital Gains Tax. For the purposes of computing an individual’s liability to CGT, the purchase price of the shares will be considered to be the cost before deduction of the tax relief.

*Subject to investee company meeting certain criteria.

EIIS Tax Relief Example 3 – Pension Funds in Excess of Standard Fund Threshold (€2M) 

Seamus (60) is a hospital consultant and has an HSE pension payable at age 65. He also has significant personal pension funds from his private practice income. At his review last year, the capital value of his combined pension was in excess of €2M and it was decided that it was no longer tax efficient for him to make contributions to his private pension funds.

He has income of €250,000 from his private practice. He decides to invest €150,000 in EIIS investments in 2021 across a number of different companies. He will receive the following tax relief:

Investment                                   €150,000

Tax relief given Year 1*                   €60,000

Net Cost of Investment               €90,000

Return after Year 4                         €150,000 + investor return.

The investor return is subject to Capital Gains Tax.

*Subject to investee company meeting certain criteria.

 

EIIS Tax Relief Example 4 – Impact on Preliminary Tax Payment for 2021

John is filing his 2019 tax return in October 2021. At this date he will pay the balance of his tax liability in respect of 2020 and his preliminary tax liability for 2021. He has invested €100,000 in a number of companies that qualify for EIIS relief.

John has the option to pay 100% of his 2020 income tax liability or 90% of his 2021 income tax liability. If he decides to pay 90% of his 2021 liability, he can factor in the income tax relief from the EIIS investment in his preliminary tax payment for 2021 once the investment in the company is made in 2021

 

To view the current Green Crowd Investment Opportunities across companies please visit EIIS Private Placing  – For further information or contact us via email or telephone our office. A link is available here to information from the Inland revenue information on EIIS 2021 Scheme here. 

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